Abstract
New drug reimbursement is a high stakes game and price is the mechanism whereby the new drug’s innovative surplus is apportioned between consumers and producers. Some countries use the results of cost-effectiveness analyses to inform the pricing decision. These countries express the result of a cost-effectiveness analysis as a price per effect and compare it to a decision threshold; a price above which the regulator will consider rejecting the new drug. Typically, if a decision threshold is lower that the firm’s preferred price (FPP) and there is a possibility of rejection, a firm will mount an evidence based case as to why the final drug price should not be below the threshold. There is a plethora of texts and guidelines available to regulators and health economic analysts on the methods of cost-effectiveness analyses of new drugs and the choice of decision thresholds. There are few, if any, formal texts available to guide regulators as to the optimal response to the claim that prices below the FPP are not in the population’s best interest because the benefits of cost saving today are offset by the loss of future health due to less innovation. This chapter introduces four rules and four tools which, if applied by regulators, will maximise the present value of the population’s health. A key theme is introduced: a strategy used by firms in the new drug reimbursement game is the threat that lower prices are not in the interest of the population.
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Notes
- 1.
Throughout this book I use the term “new drug price” in the context of new drug prices generally. If a specific price is referred to I use the term “the price of the new drug” or “the new drug’s price”. See “Glossary of Phrases”.
- 2.
Kefauver was a US Congressman then Senator from 1939 to his death in 1963. He chaired a number of significant US Senate Committees, including a 1950 committee on organised crime. The Kefauver Committee of 1959 was motivated by the “excess profits” of the US pharmaceutical industry. It was seen as an antitrust (market power) Committee rather than a drug safety and quality regulation Committee. His work on this Committee resulted in the Kefauver-Harris Drug Act of 1962. This committee explored the nature and consequences of market power and rent seeking in the pharmaceutical industry. Amongst other things, it challenged the pharmaceutical industry’s payments to the American Medical Association in terms of the implications this would have for objective scientific reporting of new drugs. For further information, a good place for an economist to start is Comanor (1966).
- 3.
See for example, Gibbons (1992), p. 56.
- 4.
Of course this is a simplistic definition of the objective of a health care system. The main point is that this system does not explicitly value the following as part of the drug reimbursement process: the technology that is used to deliver the health gains. That is, whatever it is that the health system values, it is irrelevant to the Reimburser’s decision whether the outcome is obtained using the newest drug or conventional old tech therapies. Specifically, this excludes the possibility that a clinical or institutional decision maker will be prepared to pay for “novelty”. The possibility that this is the case is raised in the Conclusion.
- 5.
Relative to the early adopters (Australia and Canada) some European countries are late adopters of routine use of economic evaluation to inform drug decisions (post 2000), and the US is still to adopt this practice. How early did Australia and Canada start using economic evaluation of pharmaceuticals? From the 1994 first edition of the Canadian Economic Evaluation Guidelines: “Australia was the first country to develop and implement guidelines for the economic evaluation of pharmaceuticals. Draft guidelines were released in 1990, revised in 1992, and are currently going through the process of second revision. In Canada, the process for developing these guidelines began when the Province of Ontario issued draft guidelines for comment in the Fall of 1991. During 1992 it was determined that it would be useful to develop a set of Canadian guidelines, that each Province could adopt, with or without modifications, as they saw fit” (Canadian Coordinating Office for Health Technology Assessment 1994).
- 6.
A summary of the issues is contained in Harvey et al. (2004).
- 7.
A second important exception was the statement by Prof. Gerard Anderson, of John Hopkins. His oral statement and the resultant discussion with the Joint Committee Hearing are both reproduced as Attachment 2. These excerpts capture the drama and intensity of the political economy of new drugs perfectly. And finally, Prof. Alan Sager (2003) from Boston School of Public Health gave a presentation in 2003 (around the same time) which summarises the issues regarding access from the position of the US.
- 8.
See discussion of this issue in Chap. 4.
- 9.
- 10.
See for example (Giaccotto et al. 2005) which accessed a data set from Pharmaceutical Researcher and Manufacturers of America (PhRMA) that is not in the public domain.
- 11.
This preference for using the maxWTP as a threshold price (or “value for money” as a criterion) for adoption and reimbursement probably continues in many institutions. Since 1992 Birch and Gafni have pointed out that this strategy will not maximise a population’s health from a given budget, unless the budget is sufficiently large to accommodate all programs that are value for money or that the budget continues to increase to accommodate these programs and technologies.
- 12.
The National Institute for Health and Clinical Excellence (2007) provides a summary of the issues.
- 13.
The budgetary impact is the net additional cost of adopting the new drug. The proposed threshold of d will be a function of budgetary impact if the cost per effect of displaced services changes as the amount of services displaced increases. This is in contrast to the most prominent option for the threshold k, the maximum willingness to pay for a health effect, which is exogenous to the state of the health budget.
- 14.
For a description of both the narrative and the associated economic model of the Prisoner’s dilemma, see Gibbons (1992).
- 15.
Without evidence of ICERs of all the health programs and technologies, this statement is difficult to prove. Certainly there are services that can be considered “cost ineffective” that are currently funded and could be disinvested. There are also other services that are cost-effective and that could be funded (Weinstein 2008). My point is simply that we cannot act as if health budgets are unconstrained, or are constrained only by some lay measure of “value for money” which is typically insensitive to changes in competition in the market for health inputs (See Chap. 3). Furthermore, an important theme in this book is that the choice of price by a firm that is a patent holder and has some monopoly power is endogenous to the choice of threshold; if a given threshold is imposed, firms with technologies that have ICERs greater than this threshold have the option to lower their price in order to make them “cost-effective”. Therefore, technologies with ICERs greater than a given threshold will not necessary remain unfunded if that threshold is imposed (see Chap. 6). And finally, choice of a threshold needs to involve recognition of the budget constraint. Weinstein (2008) made a direct association between the US’s preference for not applying CEA and decision thresholds and the lack of willingness of Americans to recognise they cannot Supply all citizens with “effective health care services”.
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Pekarsky, B.A.K. (2015). Introduction. In: The New Drug Reimbursement Game. Adis, Cham. https://doi.org/10.1007/978-3-319-08903-4_1
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